EN BANC
— Notwithstanding any exemption granted by any law or other
[G.R. No. 143867. March 25, 2003.]
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., Petitioner, v. CITY OF
DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of
Davao, Respondents.
RESOLUTION
MENDOZA, J.:
Petitioner seeks a reconsideration of the decision of the Second Division in this case.
Because the decision bears directly on issues involved in other cases brought by
petitioner before other Divisions of the Court, the motion for reconsideration was
referred to the Court en banc for resolution. 1 The parties were heard in oral arguments
by the Court en banc on January 21, 2003 and were later granted time to submit their
memoranda. Upon the filing of the last memorandum by the City of Davao on February
10, 2003, the motion was deemed submitted for resolution.chanrob1es virtua1 1aw
1ibrary
To provide perspective, it will be helpful to restate the basic facts.
Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts.
The franchise tax was paid "in lieu of all taxes on this franchise or earnings thereof"
pursuant to R.A. No. 7082 amending its charter, Act No. 3436. The exemption from "all
taxes on this franchise or earnings thereof" was subsequently withdrawn by R.A. No.
7160 (Local Government Code of 1991), which at the same time gave local government
units the power to tax businesses enjoying a franchise on the basis of income received
or earned by them within their territorial jurisdiction. The Local Government Code
(LGC) took effect on January 1, 1992.
The pertinent provisions of the LGC state:cvirtual 1aw library
Sec. 137. Franchise Tax.
special law, the province may impose a tax on businesses enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or realized, within its
territorial jurisdiction. . . .
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or -controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938, non-
stock and non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code .
Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of
1992, which in pertinent part provides:chanrob1es virtual 1aw library
Notwithstanding any exemption granted by any law or other special law, there is
hereby imposed a tax on businesses enjoying a franchise, at a rate of Seventy-five
percent (75%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the income or receipts realized within the territorial
jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp.
(Globe) 2 and Smart Information Technologies, Inc. (Smart) 3 franchises which
contained "in lieu of all taxes" provisos. In 1995, it enacted R.A. No. 7925 (Public
Telecommunications Policy of the Philippines), § 23 of which provides that "Any
advantage, favor, privilege, exemption, or immunity granted under existing franchises,
or may hereafter be granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately and unconditionally
to the grantees of such franchises." The law took effect on March 16, 1995.
In January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro
Exchange, it was required to pay the local franchise tax for the first to the fourth quarter
of 1999 which then had amounted to P3,681,985.72. PLDT challenged the power of the
city government to collect the local franchise tax and demanded a refund of what it had
paid as local franchise tax for the year 1997 and for the first to the third quarters of
1998. For this reason, it filed a petition in the Regional Trial Court of Davao. However,
its petition was dismissed and its claim for exemption under R.A. No. 7925 was denied.
The trial court ruled that the LGC had withdrawn tax exemptions previously enjoyed
by persons and entities and authorized local government units to impose a tax on
businesses enjoying franchises within their territorial jurisdictions, notwithstanding
the grant of tax exemption to them. Petitioner, therefore, brought this appeal.
In its decision of August 22, 2001, this Court, through its Second Division, held that R.A.
No. 7925, § 23 cannot be so interpreted as granting petitioner exemption from local
taxes because the word "exemption," taking into consideration the context of the law,
does not mean "tax exemption." Hence this motion for reconsideration.
The question is whether, by virtue of RA. No. 7925, § 23, PLDT is again entitled to
exemption from the payment of local franchise tax in view of the grant of tax exemption
to Globe and Smart.
Petitioner contends that because their existing franchises contain "in lieu of all taxes"
clauses, the same grant of tax exemption must be deemed to have become ipso facto
part of its previously granted telecommunications franchise. But the rule is that tax
exemptions should be granted only by clear and unequivocal provision of law
"expressed in a language too plain to be mistaken." 4 If, as PLDT contends, the word
"exemption" in R.A. No. 7925 means "tax exemption" and assuming for the nonce that
the charters of Globe and of Smart grant tax exemptions, then this runabout way of
granting tax exemption to PLDT is not a direct, "clear and unequivocal" way of
communicating the legislative intent.
But the best refutation of PLDT’s claim that R.A. No. 7925, § 23 grants tax exemption is
the fact that after its enactment on March 16, 1995, Congress granted several franchises
containing both an "equality clause" similar to § 23 and an "in lieu of all taxes" clause.
If the equality clause automatically extends the tax exemption of franchises with "in
lieu of all taxes" clauses, there would be no need in the same statute for the "in lieu of
all taxes" clause in order to extend its tax exemption to other franchises not containing
such clause. For example, the franchise of Island Country Telecommunications, Inc.,
granted under R.A. No. 7939 and which took effect on March 22, 1995, contains the
following provisions:chanrob1es virtual 1aw library
Sec. 8. Equality Clause. — If any subsequent franchise for telecommunications service
is awarded or granted by the Congress of the Philippines with terms, privileges and
conditions more favorable and beneficial than those contained in this Act, then the
same privileges or advantages shall ipso facto accrue to the herein grantee and be
deemed part of this Act.
Sec. 10. Tax Provisions. — The grantee shall be liable to pay the same taxes on their real
estate, buildings and personal property exclusive of this franchise, as other persons or
telecommunications entities are now or hereafter may be required by law to pay. In
addition hereto, the grantee, its successors or assigns, shall pay a franchise tax
equivalent to three percent (3%) of all gross receipts transacted under this franchise,
and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof;
Provided, That the grantee shall continue to be liable for income taxes payable under
Title II of the National Internal Revenue Code. The grantee shall file the return with and
pay the taxes due thereon to the Commissioner of Internal Revenue or his duly
authorized representatives in accordance with the National Revenue Code and the
return shall be subject to audit by the Bureau of Internal Revenue. (Emphasis added)
Similar provisions ("in lieu of all taxes" and equality clauses) are also found in the
franchises of Cruz Telephone Company, Inc., 5 Isla Cellular Communications, Inc., 6 and
Islatel Corporation.
We shall now turn to the other points raised in the motion for reconsideration of
PLDT.chanrob1es virtua1 1aw 1ibrary
First. Petitioner contends that the legislative intent to promote the development of the
telecommunications industry is evident in the use of words as "development,"
"growth," and "financial viability," and that the way to achieve this purpose is to grant
tax exemption or exclusion to franchises belonging in this industry. Furthermore, by
using the words "advantage," "favor," "privilege," "exemption," and "immunity" and the
terms "ipso facto," "immediately," and "unconditionally," Congress intended to
automatically extend whatever tax exemption or tax exclusion has been granted to the
holder of a franchise enacted after the LGC to the holder of a franchise enacted prior
thereto, such as PLDT.
The contention is untenable. The thrust of the law is to promote the gradual
deregulation of entry, pricing, and operations of all public telecommunications entities
and thus to level the playing field in the telecommunications industry. An intent to grant
tax exemption cannot even be discerned from the law. The records of Congress are
bereft of any discussion or even mention of tax exemption. To the contrary, what the
Chairman of the Committee on Transportation, Rep. Jerome V. Paras, mentioned in his
sponsorship of H.B. No. 14028, which became R.A. No. 7925, were "equal access
clauses" in interconnection agreements, not tax exemptions. He said:chanrob1es
virtual 1aw library
There is also a need to promote a level playing field in the telecommunications industry.
New entities must be granted protection against dominant carriers through the
encouragement of equitable access charges and equal access clauses in interconnection
agreements and the strict policing of predatory pricing by dominant carriers. Equal
access should be granted to all operators connecting into the interexchange network.
There should be no discrimination against any carrier in terms of priorities and/or
quality of service.
Nor does the term "exemption" in § 23 of R.A. No. 7925 mean tax exemption. The term
refers to exemption from certain regulations and requirements imposed by the
National Telecommunications Commission (NTC). For instance, R.A. No. 7925, § 17
provides: "The Commission shall exempt any specific telecommunications service from
its rate or tariff regulations if the service has sufficient competition to ensure fair and
reasonable rates or tariffs." Another exemption granted by the law in line with its policy
of deregulation is the exemption from the requirement of securing permits from the
NTC every time a telecommunications company imports equipment.
Second. PLDT says that the policy of the law is to promote healthy competition in the
telecommunications industry. 10 According to PLDT, the LGC did not repeal the "in lieu
of all taxes" provision in its franchise but only excluded from it local taxes, such as the
local franchise tax. However, some franchises, like those of Globe and Smart, which
contain "in lieu of all taxes" provisions, were subsequently granted by Congress. The
result is that while the holders of franchises granted prior to January 1, 1992, when the
LGC took effect, had to pay local franchise tax in view of the withdrawal of their local
tax exemption, those whose franchises were granted after January 1, 1992, because of
the "in lieu of all taxes" provisions contained therein, were exempted from such local
tax. It is argued that it is this disparate situation which R.A. No. 7925, § 23 seeks to
rectify.
One can speak of healthy competition only between equals. For this reason, the law
seeks to break up monopoly in the telecommunications industry by gradually
dismantling the barriers to entry and granting to new telecommunications entities
protection against dominant carriers through equitable access charges and equal
access clauses in interconnection agreements and through the strict policing of
predatory pricing by dominant carriers. 11 Interconnection among carriers is made
mandatory to prevent a dominant carrier from delaying the establishment of
connection with a new entrant and to deter the former from imposing excessive access
charges. 12
That is also the reason there are franchises 13 granted by Congress after the effectivity
of R.A. No. 7925 which do not contain the "in lieu of all taxes" clause, just as there are
franchises, also granted after March 16, 1995, which contain such exemption from
other taxes. 14 If, by virtue of § 23, the tax exemption granted under existing franchises
or thereafter granted is deemed applicable to previously granted franchises (i.e.,
franchises granted before the effectivity of R.A. No. 7925 on March 16, 1995), then
those franchises granted after March 16, 1995, which do not contain the "in lieu of all
taxes" clause, are not entitled to tax exemption. The "in lieu of all taxes" provision in
the franchises of Globe and Smart, which are relatively new entrants in the
telecommunications industry, cannot thus be deemed applicable to PLDT, which had
virtual monopoly in the telephone service in the country for a long time, 15 without
defeating the very policy of leveling the playing field of which PLDT speaks.
Third. Petitioner argues that the rule of strict construction of tax exemptions does not
apply to this case because the "in lieu of all taxes" provision in its franchise is more a
tax exclusion than a tax exemption. Rather, the applicable rule should be that tax laws
are to be construed most strongly against the government and in favor of the taxpayer.
This is contrary to the uniform course of decisions 16 of this Court which consider "in
lieu of all taxes" provisions as granting tax exemptions. As such, it is a privilege to which
the rule that tax exemptions must be interpreted strictly against the taxpayer and in
favor of the taxing authority applies. Along with the police power and eminent domain,
taxation is one of the three necessary attributes of sovereignty. Consequently, statutes
in derogation of sovereignty, such as those containing exemption from taxation, should
be strictly construed in favor of the state. A state cannot be stripped of this most
essential power by doubtful words and of this highest attribute of sovereignty by
ambiguous language.
Indeed, both in their nature and in their effect there is no difference between tax
exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom from
a charge or burden to which others are subjected. 18 Exclusion, on the other hand, is
the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from
gross income and allowable deductions. 19 Exclusion is thus also an immunity or
privilege which frees a taxpayer from a charge to which others are subjected.
Consequently, the rule that tax exemption should be applied in strictissimi juris against
the taxpayer and liberally in favor of the government applies equally to tax exclusions.
To construe otherwise the "in lieu of all taxes" provision invoked is to be inconsistent
with the theory that R.A. No. 7925, § 23 grants tax exemption because of a similar grant
to Globe and Smart.chanrob1es virtua1 1aw 1ibrary
Petitioner cites Cagayan Electric Power & Light Co., Inc. v. Commissioner of Internal
Revenue 20 in support of its argument that a "tax exemption" is restored by a
subsequent law re-enacting the "tax exemption." It contends that by virtue of R.A. No.
7925, its tax exemption or exclusion was restored by the grant of tax exemptions to
Globe and Smart. Cagayan Electric Power & Light Co., Inc., however, is not in point. For
there, the re-enactment of the exemption was made in an amendment to the charter of
Cagayan Electric Power and Light Co.
Indeed, petitioner’s justification for its claim of tax exemption rests on a strained
interpretation of R.A. No. 7925, § 23. For petitioner’s claim for exemption is not based
on an amendment to its charter but on a circuitous reasoning involving inquiry into the
grant of tax exemption to other telecommunications companies and the lack of such
grant to others. 21 Surely, Congress could more clearly and directly have granted tax
exemption to all franchise holders or amended the charter of PLDT to again exempt it
from tax if this had been its purpose.
The fact is that after petitioner’s tax exemption by R.A. No. 7082 had been withdrawn
by the LGC, 22 no amendment to re-enact its previous tax exemption has been made by
Congress. Considering that the taxing power of local government units under R.A. No.
7160 is clear and is ordained by the Constitution, petitioner has the heavy burden of
justifying its claim by a clear grant of exemption. Tax exemptions should be granted
only by clear and unequivocal provision of law on the basis of language too plain. to be
mistaken. 24 They cannot be extended by mere implication or inference. Thus, it was
held in Home Insurance & Trust Co. v. Tennessee 25 that a law giving a corporation all
the "powers, rights reservations, restrictions, and liabilities" of another company does
not give an exemption from taxation which the latter may possess. In Rochester R. Co.
v. Rochester, 26 the U.S. Supreme Court, after reviewing cases involving the effect of the
transfer to one company of the powers and privileges of another in conferring a tax
exemption possessed by the latter, held that a statute authorizing or directing the grant
or transfer of the "privileges" of a corporation which enjoys immunity from taxation or
regulation should not be interpreted as including that immunity. Thus:chanro
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We think it is now the rule, notwithstanding earlier decisions and dicta to the contrary,
that a statute authorizing or directing the grant or transfer of the "privileges" of a
corporation which enjoys immunity from taxation or regulation should not be
interpreted as including that immunity. We, therefore, conclude that the words "the
estate, property, rights, privileges, and franchises" did not embrace within their
meaning the immunity from the burden of paving enjoyed by the Brighton Railroad
Company. Nor is there anything in this, or any other statute, which tends to show that
the legislature used the words with any larger meaning than they would have standing
alone. The meaning is not enlarged, as faintly suggested, by the expression in the statute
that they are to be held by the successor "fully and entirely, and without change and
diminution," — words of unnecessary emphasis, without which all included in "estate,
property, rights, privileges, and franchises" would pass, and with which nothing more
could pass. On the contrary, it appears, as clearly as it did in the Phoenix Fire Insurance
Company Case, that the legislature intended to use the words "rights, franchises, and
privileges" in the restricted sense. . . .
Fourth. It is next contended that, in any event, a special law prevails over a general law
and that the franchise of petitioner giving it tax exemption, being a special law, should
prevail over the LGC, giving local governments taxing power, as the latter is a general
law. Petitioner further argues that as between two laws on the same subject matter
which are irreconcilably inconsistent, that which is passed later prevails as it is the
latest expression of legislative will.
This proposition flies in the face of settled jurisprudence. In City Government of San
Pablo, Laguna v. Reyes, 28 this Court held that the phrase "in lieu of all taxes" found in Panganiban, J., took no part; same reason given in original Decision.
special franchises should give way to the peremptory language of § 193 of the LGC
specifically providing for the withdrawal of such exemption privileges. Thus, the rule
that a special law must prevail over the provisions of a later general law does not apply
as the legislative purpose to withdraw tax privileges enjoyed under existing laws or
charters is apparent from the express provisions of §§ 137 and 193 of the LGC.

As to the alleged inconsistency between the LGC and R.A. No. 7925, this Court has
already explained in the decision under reconsideration that no inconsistency exists
and that the rule that the later law is the latest expression of the legislature does not
apply. The matter need not be further discussed.

In any case, it is contended, the ruling of the Bureau of Local Government Finance
(BLGF) that petitioner’s exemption from local taxes has been restored is a
contemporaneous construction of § 23 and, as such, it is entitled to great weight.

The ruling of the BLGF has been considered in this case. But unlike the Court of Tax
Appeals, which is a special court created for the purpose of reviewing tax cases, the
BLGF was created merely to provide consultative services and technical assistance to
local governments and the general public on local taxation and other related matters.
29 Thus, the rule that the "Court will not set aside conclusions rendered by the CTA,
which is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority" 30 cannot
apply in the case of BLGF.

WHEREFORE the motion for reconsideration is DENIED and this denial is

final.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

Davide, Jr., C.J., Quisumbing, Corona, Carpio-Morales, Callejo, Sr. and Azcuna, JJ., concur.

Vitug, J., concur; a statute effectively limiting the constitutionally-delegated tax powers
of LGU’s can only be done in a clear and express manner.